Unbundling Case Study: The sorry state of Western Australia’s electricity market reform

● By Adam McHugh, Murdoch University, Australia ● It should have led to lower electricity prices; that was the theory at least. But the 2006 disaggregation of Western Australia’s vertically-integrated electricity utility, Western Power Corporation, into four separate state-owned entities – Verve Energy (generation), Western Power (networks), Synergy (retail sales) and Horizon Power (the state’s regional power supply entity) – has not met the expectations of the policy pundits who pushed for the reform. The disaggregation of Western Power was expected to lead to increased efficiency due to the introduction of competition, which would in turn bring about lower electricity prices. However this has not transpired. Rather, between 2008 and 2012, retail electricity prices for households connected to the Western Power Network in the south west of the state rose by 48%, and this does not even include the comparatively small (and mostly compensated for) impact of the carbon tax. On the surface, it was almost a direct application of text-book economics: full disaggregation, creation of an independent regulator and a Ministerial Direction which put a 3000 MW cap on the generation capacity of Verve Energy. So why have electricity prices risen so dramatically in Western Australia since this reform? In answering this question, it helps to focus on the main contributor to the retail electricity price: the capacity cost of meeting system-peak demand. It’s mainly a network cost but also includes the cost of peak generation capacity. This cost has not been adequately constrained? Why? The short version of the story is one of poor policy implementation due to the conflict of interest that arises when state government bureaucracy regulates state government enterprise. One doesn’t need to have too cynical a view of government in Western Australia to see your electricity tariff as being part service delivery payment and part state tax ...Zum vollständigen Artikel